Euromoney Country Risk Survey Results Q1 2014 | Page 7

Country Risk:

Euromoney’s Country Risk Survey Q1 2014 Results:
Ukraine & CEE update

Asia still vulnerable
A combination of domestic and global factors has heightened the risks across Asia, affecting many emerging and frontier
markets, including Taiwan, Macau, Malaysia, Mongolia and invariably Thailand, with its political crisis resulting in a further
fall to 60th in the rankings on the back of a 2.1 point score slide since December, and 4.7 in all since Q1 2013 – the
largest drop among its peers.
The entire Indian sub-continent has been similarly caught up in the attenuated regional risk profile, with not only India but
also Bangladesh, Pakistan and Sri Lanka succumbing to lower scores.
Bucking the trend is South Korea, which is considerably less risky in spite of the tensions with North Korea ratcheting up
a notch lately. Its short-term risk outlook is improving as fiscal stimulus powers up the economy without weakening the
strong and stable budget, and current-account surpluses, or aggravating inflation.
John Sharma, ECR expert and macroeconomist in sovereign risk at National Australia Bank, says: “There are still
challenges, the most notable being high household debt as well as stresses in second-tier chaebol [conglomerates],
and although remote the possibility of conflict [with the North] cannot be ruled out.”
However, with the economy gaining momentum, South Korean risk is waning.
“We expect GDP growth to accelerate to 3.6% and 3.8% in 2014 and 2015 respectively,” he says. “FX reserves have
swelled, the current-account surplus is close to around 6% of GDP, inflation was just 0.7% year-on-year in October and
Korean banks have improved their external liquidity profiles.”
Deteriorating sentiment spreads to sub-Saharan Africa
Almost three-quarters of the sovereigns across sub-Saharan African endured sliding risk-scores during Q1, with
currencies dragged down on the coattails of increased uncertainty toward EMs.
Substantial falls occurred in high-risk markets from Lesotho and Malawi to Sierra Leone and Djibouti, highlighting a
mixture of domestic political, economic and structural risks.
Even Africa’s safer sovereigns, South Africa, Botswana and Namibia – the only three scoring more than 50 points out
of 100 – and those issuers bubbling just below, including Gabon, Ghana and Nigeria, endured lower scores.
These increased risks are encapsulated in Ghana’s struggles to arrest the decline in its currency, the cedi, with large
fiscal and current-account deficits and modest FX reserves pointing out its vulnerability to an economic shock.

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